A four-year-old bank makes more profit than 17 PSU banks combined

The aggregate profit of 17 public-sector banks was lower than the net profit of private-sector lender Bandhan Bank Ltd alone in the September quarter of the current financial year, data compiled by Capitaline report.

While the combined net profit of these public-sector banks stood at ₹466.4 crore in July-September of FY20, Kolkata-based Bandhan Bank alone reported a profit of ₹971.8 crore. The consolidated profit of 17 private banks stood at ₹7,583.16 crore in the same period, the data showed.

These state-owned banks would have had an even worse set of aggregate profit numbers if IDBI Bank Ltd, with a loss of ₹3,458.8 crore, was not classified as a private bank after being acquired by the Life Insurance Corporation of India (LIC) earlier this year.

This comparison does not include the financials of Union Bank of India, which will declare its September quarter earnings on Thursday. The bank is expected to report a net loss of ₹130 crore in the quarter under review, according to a Bloomberg consensus of seven analysts.

The poor show by state-owned banks is a result of losses made by a handful of banks that dragged down the profit of the entire group. For instance, Allahabad Bank reported a loss of ₹2,114 crore, Indian Overseas Bank ₹2,253.6 crore and UCO Bank ₹892 crore. These overshadowed the ₹3,011.73-crore profit of State Bank of India (SBI), Bank of Baroda with ₹736.68 and Punjab National Bank at ₹507 crore.

Meanwhile, the burden of non-performing assets (NPAs) continues to take a toll on the profitability of PSU banks as these banks have to set aside huge sums of money as provisions. Total provisions of PSU banks stood at ₹39,310 crore, which although fell 18.2% on a year-on-year basis, was higher than ₹19,207.09 crore provided by their private-sector counterparts.

A chunky portion of the provisions were likely from ageing of bad loans, although banks do not typically disclose this breakup on a quarterly basis. Bank of Baroda Executive Director S L Jain recently said of the ₹3,425 crore bad loan provisions, around ₹2,500 crore were for ageing of NPAs.

The existing pool of bad loans, lack of credit demand and risk aversion by banks has led to a sharp decline in credit growth. According to Reserve Bank of India data, bank credit growth has been subdued so far this year with outstanding non-food credit growing 8.8% year-on-year to ₹97.68 trillion in the fortnight ended 25 October.

A Credit Suisse report said on 11 November that bank lending slowed to 8% at the end of September. Credit Suisse said the slowdown in bank credit was driven by both public and private sector banks. PSU banks saw growth fall from 8% to 5% year-on-year, while private sector bank growth was down from 22% to 14%.